Revenue Recognition Methods for Uncertain Cash Flows | CFA® Level 1 Exam Prep

Uncertainty in Future Cash Flows: Revenue Recognition Methods

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Question

Which type of revenue recognition method(s) is used when there is uncertainty regarding the amount or collectibility of future cash flows?

Answers

A. percentage-of-completion and installment methods

B. completed contract method

C. installment and cost recovery methods

D. installment method

E. completed contract and cost recovery methods

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Explanations

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A. B. C. D. E.

The installment method recognizes gross profit in proportion to cash collections. The cost recovery method requires that all cash receipts be first accounted for as a recovery of costs. Only after all costs are recovered can profit be recognized.

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